Finance / Ghana benefits from natural resources
Ghana benefits from natural resources
12 May 2013 |
Natural resources are playing such a dominant role in Ghana’s finances that they could risk “crowding out” investment in other areas and unbalancing the country’s economy, according to one expert.
The country enjoyed a whopping 14.4 per cent growth last year according to the World Bank, at least in part because of natural resources such as precious metals.
Henry Telli, an economist for the International Growth Centre, a group which provides the UK with policy advice on developing economies, says: “Natural resources are a very important part of Ghana’s economy.
“The major economic natural resources in Ghana are gold, manganese, bauxite, industrial diamonds, timber, rubber, hydropower, petroleum, silver, salt and limestone.
“Gold and bauxite alone account for 64.4 per cent of Ghana primary exports.”
The importance of this sector to Ghana’s economy is on the increase. According to the Extractive Industries Transparency Initiative, an international body which monitors payments between governments and companies, Ghana’s government took in $50 million in mining revenues alone in 2011, compared to $20 million in 2010.
Telli says that money from natural resources could result in benefits for the country if it is spent properly, for example by using revenues for long-term investments and encouraging future returns. But he also fears this could end up with the natural resource sector becoming too large, sucking investment away from other sectors and damaging other parts of the economy.
He says: “If harnessed properly, the revenues from natural resources could be invested in the development of the much-needed infrastructure, such as energy, transport, housing and ICT.
“This would generate further employment and improve livelihoods presently, but would also yield significant returns and benefits to future generations.
“The possible downside is that massive investment in the natural resource subsector can crowd out loanable funds, manpower and land from other sectors – particularly agriculture and manufacturing.
“The other potential challenge may be dealing with the environmental impact, if strong institutions are not put in place to regulate and enforce best practices.”
The International Monetary Fund (IMF), which led a mission to Ghana in April, has also had concerns about Ghana’s debts and the amount it spends on wages in the public sector.
In a statement Christina Daseking, who led the mission, said: “Despite Ghana’s strong economic potential, short-term stability risks have risen.
“Ghana’s strong democratic institutions and favourable prospects for oil and gas continue to attract significant foreign direct investment. Yet low external buffers and a rising domestic debt ratio expose the economy to risks, such as weaker terms of trade, reduced capital inflows, or unanticipated spending needs.
“Energy sector problems could curtail growth, while excessive government domestic borrowing is raising the cost of credit to the private sector.”